Alaska. October 26,

Transcription

1 Alaska October 26,

2 Alaska State Advisory Forum Annual Issues Symposium (AIS): Bill Donnell Video Introduction Countrywide Workers Compensation System Alaska Workers Compensation System and Filing Activity Countrywide and Alaska Labor Markets Guest Speaker: Lori Wing-Heier, Director, Alaska Division of Insurance Legislative Issues: Countrywide and Alaska Emerging Issues: Air Ambulances and Workers Compensation Residual Market: Countrywide and Alaska Closing Remarks 2

3 AIS State of the Line Video Excerpt Bill Donnell NCCI President and CEO

4 Countrywide Workers Compensation System

5 Countrywide Workers Compensation (WC) System An Overview After five years of growth, premium is flat in the most recent year The combined ratio continues to show favorable results Frequency declined again at the latest point Medical and indemnity severity are increasing modestly 5

6 WC Net Written Premium Private Carriers and State Funds $ Billions State Funds ($B) Private Carriers ($B) p Calendar Year p Preliminary Source: NAIC s Annual Statement data; includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, and UT Each calendar year total for state funds includes all funds operating as a state fund in that year 6

7 WC Direct Written Premium (DWP) Change by Component Private Carriers NCCI States Change in Direct Written Premium: 0.0% 2016 vs Payroll +4.0% Loss Cost and Mix -2.7% Carrier Discounting -1.4% State Fund Conversion to Private Carrier +1.0% Other Factors -0.8% Sources: DWP Change: NAIC s Annual Statement Statutory Page 14 for all states where NCCI provides ratemaking services Components: NCCI s Policy data 7

8 Increases in Payroll Continue to Drive Premium Growth Forecast Change Payroll Wage Rate +4.5% Employment +2.5% +1.9% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% Prof. & Business Services Trade, Transport., & Utilities Education & Health Services Financial Activities Construction Manufacturing Construction Leisure & All Other Hospitality -1% Prof. & Business Services Trade, Transport., & Utilities Education & Health Services Financial Activities Manufacturing Leisure & All Other Hospitality Sources: Moody s Analytics and NCCI 8

9 Percent 5 WC Approved Changes in Bureau Premium Level By Effective Year for NCCI States p Calendar Year p Preliminary Source: NAIC s Annual Statement Statutory Page 14 Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, as of 5/12/2017, relative to those previously approved in NCCI states only IN and NC are filed in cooperation with state rating bureaus 9

10 Percent WC Impact of Discounting on Premium Private Carriers NCCI States p Policy Year p Preliminary Sources: NAIC s Annual Statement Statutory Page 14 and NCCI s Financial Call data NCCI benchmark level does not include a profit and contingency provision or expense constant Based on data for all states where NCCI provides ratemaking services, excluding TX 10

11 WC Impact of Discounting on Premium Private Carriers NCCI States Dividends Schedule Rating Rate/Loss Cost Departure p Policy Year p Preliminary Sources: NAIC s Annual Statement Statutory Page 14 and NCCI s Financial Call data Dividend ratios are based on calendar year statistics NCCI benchmark level does not include a profit and contingency provision or expense constant Based on data for all states where NCCI provides ratemaking services, excluding TX 11

12 Percent WC Combined Ratio Underwriting Gain Achieved Private Carriers 3% lower p Calendar Year p Preliminary Source: NAIC s Annual Statement data 12

13 WC Combined Ratio Components Private Carriers Percent Dividends Underwriting Expense Ratio Loss Adjustment Expense (LAE) Ratio Loss Ratio p Calendar Year p Preliminary Source: NAIC s Annual Statement data 13

14 WC Net Combined Ratios Calendar Year vs. Accident Year As Reported Private Carriers Percent Calendar Year Accident Year p p Preliminary Source: NAIC s Annual Statement data Accident Year information is reported as of 12/31/2016 Includes dividends to policyholders 14

15 Percent WC Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds NCCI States Average Annual Change: 3.6% ( ) p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2016 Source: NCCI s Financial Call data, developed to ultimate, premium adjusted to current wage and voluntary pure premium level, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through

16 WC Average Medical Lost-Time Claim Severity Private Carriers and State Funds NCCI States Severity ($ Thousands) % +5% $27.7 $ p Accident Year p Preliminary based on data valued as of 12/31/2016 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through

17 WC Average Medical Lost-Time Claim Severity Private Carriers and State Funds NCCI States Cumulative Change in Medical Lost-Time Claim Severity ( p): +227% Cumulative Change in the Personal Health Care Chain-Weighted Price Index ( p): +66% p Accident Year p Preliminary based on data valued as of 12/31/2016 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through 2007 Centers for Medicare & Medicaid Services: Personal Health Care (PHC) Chain-Weighted Price Index 17

18 Changes in Medical Lost-Time Claim Severity by Component Private Carriers and State Funds NCCI States +72% +56% Change in the Medical Utilization Component +47% +27% Change in Overall Medical Severity +16% Change in the Medical Price Component +20% +14% +2% +12% 1995 to to to 2016p p Preliminary based on data valued as of 12/31/2016 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through 2007 Centers for Medicare & Medicaid Services: PHC Chain-Weighted Price Index 18

19 Severity ($ Thousands) WC Average Indemnity Claim Severity Private Carriers and State Funds NCCI States % +3% $23.2 $ p Accident Year p Preliminary based on data valued as of 12/31/2016 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through

20 WC Average Indemnity Claim Severity Private Carriers and State Funds NCCI States Cumulative Change in Indemnity Claim Severity ( p): +145% Cumulative Change in Wage Inflation ( p): +100% p Accident Year p Preliminary based on data valued as of 12/31/2016 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through 2007 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2016p, NCCI, and Moody s Analytics 20

21 Relative Growth Rates Indemnity Severity vs. Wage Inflation Private Carriers and State Funds NCCI States +65% +33% Change in Indemnity Severity in Excess of Wage Inflation +34% +9% Change in Overall Indemnity Severity +32% Change in Wage Inflation +25% +7% +19% -12% 1995 to to to 2016p p Preliminary based on data valued as of 12/31/2016 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through 2007 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2016p, NCCI, and Moody s Analytics 21

22 Alaska Workers Compensation System

23 Alaska Workers Compensation System An Overview Declining premium volume Fluctuating combined ratios Frequency continues to decline Increasing indemnity and medical costs 23

24 331.0 Alaska Workers Compensation Premium Volume Direct Written Premium in $ Millions Source: NAIC s Annual Statement data Calendar Year 24

25 Impact of Discounting on Workers Compensation Premium in Alaska 10% 14% 15% 9% 5% 0% 0% 0% 1% 3% 8% 8% 6% 6% 1% Percent -8% Policy Year Dividends Schedule Rating Rate/Loss Cost Departure Based on data through 12/31/2016 Dividend ratios are based on calendar year statistics 25

26 Alaska Accident Year Combined Ratios by Component 88% 1% 31% 86% 1% 32% 103% 1% 32% 82% 1% 32% 96% 1% 34% 69% 56% 61% 53% 48% Loss Ratio Expense Ratio Dividend Ratio Accident Year Sources: NCCI s financial data through 12/31/2016 and NAIC s Annual Statement data 26

27 -13.6% -8.5% -8.6% -6.1% -7.1% -8.0% -7.0% -2.0% -0.8% -4.7% -1.8% -2.4% -2.4% 1.5% Alaska Workers Compensation Lost-Time Claim Frequency Lost-Time Claims Cumulative Change of 52.6% ( ) Percent Change Policy Year Based on NCCI s financial data through 12/31/2016, developed to ultimate, premium adjusted to common wage level 27

28 Alaska Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +18.2% ( ) -8.6% 3.3% -0.9% -15.7% 35.6% -2.8% -0.5% -4.2% 8.4% -4.6% -6.2% 18.0% 0.4% 3.9% $20.6 $19.8 $19.7 $16.7 $17.9 $18.7 $17.3 $18.0 $18.1 $18.6 $13.7 $16.3 $16.4 $15.9 $ Policy Year Based on NCCI s financial data through 12/31/2016, on-leveled and developed to ultimate 28

29 Alaska Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands 16.3% -6.0% 5.1% Cumulative Change of % ( ) 30.6% -2.3% 12.0% 0.5% 12.9% -4.8% 3.8% $ % $ % -3.6% -1.2% $26.6 $26.9 $28.0 $34.8 $34.0 $38.0 $38.2 $43.2 $41.1 $42.7 $49.7 $46.7 $ Policy Year Based on NCCI s financial data through 12/31/2016, on-leveled and developed to ultimate 29

30 Alaska Filing Activity Voluntary Loss Cost and Assigned Risk Rate Changes -0.8% -1.6% -0.7% -2.6% -2.7% -3.4% -3.7% -3.7% -4.2% -7.9% 1/1/2015 1/1/2016 5/1/2016* 1/1/2017 1/1/2018 Pending Voluntary Assigned Risk *Law-only filing 30

31 Alaska January 1, 2018 Loss Cost Filing Overall Loss Cost Level Change: 7.9% Change in Experience: 5.1% Change in Trend: 3.3% Change in Benefits: 0.3% Change in All Other: 0.1% 31

32 Alaska January 1, 2018 Filing Average Changes by Industry Group Overall Change: 7.9% Manufacturing: 9.3% Contracting: 5.7% Office & Clerical: 11.2% Goods & Services: 7.3% Miscellaneous: 8.4% Oil & Gas: 9.2% 32

33 Cumulative Loss Cost Level Change (%) Alaska Cumulative Loss Cost Level Change Since 1/1/ /11 1/12 1/13 1/14 1/15 1/16 5/16 1/17 1/18 Effective Date 33

34 Percent 15 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Excludes Law-Only Filings OK NM CT OR AL NH MD IN CO TN NC IL NV WV LA UT FL IA AR AK VT MT TX KS AZ MS ID KY RI ME NE DC MO HI SD GA VA SC Approved Pending Reflects the most recent experience filing in each jurisdiction Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons 34

35 Current Voluntary Market Rates/Loss Costs Western NAIC Zone Hawaii* 1/1/18 1.7% Idaho 1/1/18 5.8% Arizona* 1/1/18 6.4% Montana 7/1/17 7.8% Texas 7/1/17 7.8% Alaska* 1/1/18 7.9% Utah 12/1/17 9.4% Nevada 3/1/ % Colorado* 1/1/ % Oregon 1/1/ % New Mexico 1/1/ % *Pending 35

36 Current Average Voluntary Pure Loss Costs Using Alaska Payroll Distribution Pure Loss Cost All Classes AK AZ MT NM OR Region Country Based on the latest NCCI approved rates and loss costs in the various states 36

37 A Cautionary Tale: The Danger of Comparing Average Loss Costs Across States

38 Countrywide and Alaska Labor Markets

39 National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment growth is expected to continue to slow Potential Impact on the Workers Compensation Market The impact on payroll and premium will also slow Wage growth is poised to accelerate Upward pressure on payroll and premium as well as indemnity severity Medical inflation is forecast to slow and then reaccelerate Interest rates are still low but expected to increase Increases in medical costs per claim Investment income will likely remain muted this year but increase as interest rates rise 39

40 Change in Private Employment Private Employment Has Declined Percent 3 Alaska United States Q1 2016Q1 2017Q1 Year-on-year percentage change; employment is for Total Private Industry Frequency of observation: quarterly; latest available data point: 2017 Q1 Sources: US Bureau of Labor Statistics, Moody s Analytics, and NCCI 40

41 Percent 3 2 Change in Average Weekly Wages Wage Growth Is Below the Nation Alaska United States Q1 2016Q1 2017Q1 Year-on-year percentage change; wages are for Total Private Industry Frequency of observation: quarterly; latest available data point: 2017 Q1 Sources: US Bureau of Labor Statistics, Bureau of Economic Analysis, Moody s Analytics, and NCCI 41

42 Private Industry Payroll Growth Decomposition Payroll Has Declined Percent % Payroll % AWW % +1.7% Employment % Alaska 2.5% 2017 Q1 year-on-year percentage change; AWW = Average Weekly Wage Sources: US Bureau of Labor Statistics, Bureau of Economic Analysis, Moody s Analytics, and NCCI United States 42

43 Change in Employment by Industry Employment in Most Industries Has Decreased in the Past Year Industrial Sector Leisure and hospitality Other services Education and health services Information Government Financial activities Trade, transportation, and utilities Construction Professional and business services Manufacturing Natural resources and mining Year-Over-Year Percent Change, 2017Q1 Sector Size % Share 1-Year Change AK , ,000 US +1.9 AK , US +1.0 AK , US +2.4 AK , US 0.9 AK , US +0.8 AK , US +2.2 AK , US +1.0 AK , ,100 US +2.8 AK , ,600 US +3.1 AK , ,400 US +0.0 AK , ,000 US 2.1 Employment numbers are rounded to the nearest hundred Year-on-year percentage change; frequency of observation; quarterly; latest available data point: 2017 Q1 Sources: US Bureau of Labor Statistics, Moody s Analytics, and NCCI 43

44 Alaska s Payroll Growth Decomposition by Sector Employment Growth + AWW Growth Payroll Growth 20% 10% 0 +10% Government Trade, transportation, and utilities Education and health services Natural resources and mining Professional and business services Construction Leisure and hospitality Financial activities Manufacturing Other services Information 10% 0 +10% +20% 20% 10% 0 +10% 2017 Q1 year-on-year percentage change; AWW = Average Weekly Wage; sectors are in descending order by the volume of state payroll amounts Sources: US Bureau of Labor Statistics, Bureau of Economic Analysis, Moody s Analytics, and NCCI 44

45 Percent 8 Headline Unemployment Rate The Unemployment Rate Is Above Average 7 AK: 7.0% US: 4.3% Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2017 Source: US Bureau of Labor Statistics (BLS), 45

46 Alaska s Labor Market Alaska s unemployment rate is above the US rate Payroll in Alaska has declined, driven by declines in employment Payroll has decreased in most sectors Both the Education and Health Services and Financial Activities sectors experienced the strongest payroll growth, driven by increases in the average weekly wage Average weekly wages have fallen in four sectors Employment has declined in Alaska Leisure and Hospitality added the most jobs Other Services also added jobs and grew at the fastest rate Most sectors have experienced declines 46

47 Guest Speaker: Lori Wing-Heier, Director Alaska Division of Insurance

48 Legislative Issues: Countrywide and Alaska

49 2017 Overview Countrywide, legislative activity has increased over prior years both in volume and content. Regulation changes thus far concern medical cost management, claim handling, and effectuating enacted legislation. Year to date, there have been about the same number of workers compensation-related cases at the state supreme court level than there were in The 2016 general election resulted in a net gain for Republicans in state government, where they now control both chambers of the legislature and the governor s office in 26 states. 49

50 2017 Workers Compensation Legislative Activity CA OR WA NV ID UT MT WY CO ND SD NE KS MN WI IA MO IL MI IN OH KY WV PA VA NY VT NH CT ME MA DC NJ DE MD RI AZ NM OK AR TN SC NC MS AL GA AK TX LA FL HI 0 10 Bills Introduced Bills Introduced Bills Introduced More Than 30 Bills Introduced As of 7/1/

51 Key Workers Compensation-Related Themes in Introduced Legislation First Responder Presumptions Indemnity Benefits Medical Cost Management Definitions 51

52 Federal Legislative and Regulatory Issues Impacting the Workers Compensation System NCCI engages Congress and federal agencies regarding issues impacting the state-based workers compensation system NCCI provides insights and information on the system to several agencies including: US Department of Labor (USDOL) National Institute for Occupational Safety and Health (NIOSH) Government Accountability Office (GAO) US Department of the Treasury 52

53 Federal Emerging Issues Regulation of Air Ambulance Services Sen. Jon Tester (MT) introduced legislation to provide state authority Federal Aviation Administration Reauthorization Social Security Disability Insurance (SSDI) Reform SSDI Solutions Initiative recommendations Trump Administration SSDI Reverse Offset Proposal Medicare Set-Aside (MSA) Reform Legislation to be introduced to bring greater efficiency to the MSA Process Congressional Budget Office scoring 53

54 2017 Alaska Legislation HB 79/SB 40 The bill focuses on: Speeding up dispute resolution process Delivery of benefits to injured employees Workers Compensation fraud Reducing administrative costs Providing funding for administration of Workers Compensation system 54

55 Emerging Issues: Air Ambulances and Workers Compensation

56 Air Ambulances The issue of air ambulances and their associated costs is under discussion in numerous states and the US Congress Some states have fee schedules regulating WC reimbursement rates for air ambulances Overview of the issue: Whether the federal Airline Deregulation Act of 1978 (ADA) preempts state WC laws as to reimbursement rates for air ambulances McCarran-Ferguson reverse preemption: Does McCarran- Ferguson, which grants authority to the states to regulate the business of insurance, preempt other federal law that may be applicable? 56

57 Air Ambulances Judicial Activity There have been several ADA preemption challenges to state reimbursement rates: Most recent cases in U.S. 10 th Circuit Court of Appeals, Texas (state and federal courts) and West Virginia federal District Court Both the U.S. 10 th Circuit Court of Appeals and West Virginia federal District Court found the ADA preempts state WC laws that regulate and/or set fixed rates for reimbursement of air ambulance carrier claims 57

58 Air Ambulances Legislative Activity Several states considered air ambulance legislation in 2017 Montana HB 73 and SB 44 Passed New Mexico HB 402 Failed West Virginia SB 276 Failed Federal activity Legislation to provide state authority (S. 471) Amendment to Federal Aviation Administration Reauthorization Act of

59 Air Ambulances The National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) are proponents of federal legislation that would allow air ambulance services and rates to be regulated at the state level NCOIL has created an Air Ambulance Task Force NAIC requested that NCCI provide aggregated, countrywide information on air ambulance usage and costs for service years 2011 to 2015 NCCI collects air ambulance information through the Medical Data Call 59

60 Air Ambulances Medical Data Basically, there are five Current Procedural Terminology (CPT) or Healthcare Common Procedure Coding System (HCPCS) codes used to describe air ambulance services: A0430 Ambulance service, conventional air services, transport, one way (fixed wing) A0431 Ambulance service, conventional air services, transport, one way (rotary wing) A0435 Fixed wing air mileage, per statute mile A0436 Rotary wing air mileage, per statute mile T2007 Transportation waiting time, air ambulance and nonemergency vehicle, one-half hour increments 60

61 Air Ambulances Countrywide Medical Data Code A0430 fixed wing, one-way transport Service Year 2011 Billed: $2,908,292 Paid: $2,541,667 Transactions: 259 Service Year 2015 Billed: $3,893,449 Paid: $2,603,749 Transactions: 254 Code A0431 rotary wing, one-way transport Service Year 2011 Billed: $20,117,771 Paid: $15,357,216 Transactions: 1,550 Service Year 2015 Billed: $32,902,966 Paid: $19,016,379 Transactions: 1,534 Service Year: Medical payments for services provided from January 1 to December 31 61

62 Air Ambulances Countrywide Medical Data Code A0435 fixed wing air mileage Service Year 2011 Billed: $3,478,506 Paid: $2,835,795 Units: 60,788 Service Year 2015 Billed: $6,222,170 Paid: $3,623,582 Units: 59,959 Code A0436 rotary wing air mileage Service Year 2011 Billed: $12,346,054 Paid: $8,944,936 Units: 98,595 Service Year 2015 Billed: $20,907,090 Paid: $10,989,492 Units: 92,388 Service Year: Medical payments for services provided from January 1 to December 31 62

63 Air Ambulances Countrywide Medical Data Code T2007 wait time, air ambulance and non-emergency Service Year 2011 Billed: $924,585 Paid: $843,918 Units: 44,775 Service Year 2015 Billed: $1,114,980 Paid: $939,032 Units: 59,686 Service Year: Medical payments for services provided from January 1 to December 31 63

64 Air Ambulances Summary Workers compensation regulators have been trying to control air ambulance costs by capping the amounts payable in the fee schedules In some cases, fee schedules were challenged and ruled unenforceable If there is no fee schedule, workers compensation insurance carriers are required to pay the high air ambulance charge unless they can negotiate a lower price Injured workers typically are not balance-billed by the air ambulance providers, unlike those insured under a health insurance plan Billed charges may differ from paid amounts in workers compensation due to reasons such as unchallenged fee schedules and negotiated payments 64

65 Residual Market: Countrywide and Alaska

66 Where Does NCCI Provide Residual Market Services? As of January 2017, NCCI provides Plan Administration services in the following states: AK, AL, AR, AZ, CT, DC, GA, IA, ID, IL, KS, MS, NH, NM, NV, OR, SC, SD, TN, VA, VT, and WV Other Plan Services: DE, IN, and NC As of January 2017, NCCI provides Pool Administration services in the following states: National Pool: AK, AL, AR, AZ, CT, DC, DE, GA, IA, ID, IL, KS, NC, NH, NJ, NV, OR, SC, SD, TN, VA, VT, and WV New Mexico Pool Tennessee Reinsurance Mechanism Financial and Actuarial Services: MA and MI 66

67 Residual Market Video Excerpt Jim Nau, General Manager NCCI Residual Markets

68 $ Millions Alaska Total Residual Market Plan Estimated Premium Volume Premium in $ Millions as of 12/31/2016 $45M $40M $35M $39M $32M $32M $39M $39M $35M $36M $30M $25M $26M $24M $27M $20M $15M $10M $5M $0M Policy Year 68

69 Alaska Residual Market Share Plan Premium as a Percentage of Direct Written Premium 16% 16% 15.3% 15.8% 15.5% 15% 15% 14% 14% 13.7% 13.9% 13% 13% * Calendar Year *Preliminary 69

70 Alaska Total Residual Market Plan Policy Counts As of 12/31/2016 8,600 8,400 8,200 8,000 8,357 8,178 8,024 7,912 8,031 7,923 8,273 8,189 7,942 7,800 7,670 7,600 7,400 7, Policy Year 70

71 Alaska Average Size Accounts for Residual Market Policies and Estimated Premium As of 12/31/2016 Premium Range Policy Count % of Policies Total Premium % of Premium Average Policy Size $0 $2,499 5, % $4,458, % $887 $2,500 $4,999 1, % $4,148, % $3,533 $5,000 $9, % $5,328, % $7,030 $10,000 $19, % $6,149, % $13,913 $20,000 $49, % $6,309, % $29,763 $50,000 $99, % $2,323, % $66,397 $100,000 $199, % $2,045, % $127,859 $200, % $4,806, % $534,081 Total 7, % $35,571, % $4,638 71

72 Policy Year Alaska Residual Market Reinsurance Pool Net Operating Results Estimated Net Operating Gain/(Loss) Projected to Ultimate as of 12/31/ ($8,255) 2015 ($645) 2014 $3, ($7,831) -$10,000 -$8,000 -$6,000 -$4,000 -$2,000 $0 $2,000 $4,000 $6,000 Operating Gain/(Loss) ('000s) 72

73 Closing Remarks

74 Supplemental Information: Loss Cost Filing Support

75 Loss Ratio Alaska Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data through 12/31/2016 at current benefit level and developed to ultimate 75

76 What Drives Indemnity and Medical Loss Ratios? Frequency (Claims/ Premium) Indemnity Severity (Loss/Claim) Indemnity Loss Ratio (Loss/Premium) Frequency (Claims/ Premium) Medical Severity (Loss/Claim) Medical Loss Ratio (Loss/Premium) 76

77 Frequency per Million of On-Leveled Premium Alaska Claim Frequency Policy Year Based on NCCI s financial data through 12/31/2016 adjusted to a common wage level 77

78 Average Indemnity Claim Severity ($ '000s) Alaska Average Indemnity Claim Severity AY Policy Year 2016 Adjusted to Common Wage Level Actual Based on NCCI s financial data through 12/31/2016 for lost-time claims at current benefit level and developed to ultimate 78

79 Average Medical Claim Severity ($ '000s) Alaska Average Medical Claim Severity AY Policy Year 2016 Adjusted to Common Wage Level Actual Based on NCCI s financial data through 12/31/2016 for lost-time claims at current benefit level and developed to ultimate 79

80 Supplemental Information: National/Regional Comparisons

81 Pure Loss Costs All Classes Current Average Voluntary Pure Loss Costs Using Alaska Payroll Distribution TX AR WV IN UT DC KS NV AZ NM MS TN SD HI NC MD VA OR MO AL CO NE OK IA KY ID NH LA RI ME SC FL GA VT MT AK CT IL CW State Based on the latest NCCI approved rates and loss costs in the various states 81

82 Medical Benefits Constitute the Majority of Total Benefit Costs in Alaska Indemnity Medical 27.1% 72.9% 34.8% 65.2% 41.4% 58.6% Regional states are AZ, MT, NM, and OR Based on NCCI s financial data through 12/31/

83 Alaska Average Claim Frequency Frequency per 100,000 Workers All Claims OR 1,547 3,091 Total 4,638 NM 770 2,577 Total 3,347 MT 1,137 4,016 Total 5,153 AZ 593 2,906 Total 3,499 AK 1,307 2,836 Total 4, Lost Time Medical Only Based on NCCI s Statistical Plan data 83

84 Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands AK AZ MT NM OR PY 2013 PY 2014 Based on NCCI s financial data for lost-time claims adjusted to common wage level 84

85 Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands AK AZ MT NM OR PY 2013 PY 2014 Based on NCCI s financial data for lost-time claims adjusted to common wage level 85

86 Alaska Distribution of Claims by Injury Type 69.0% 24.0% 7.0% 0.0% 76.0% 16.0% 8.0% 0.0% 75.0% 15.0% 10.0% 0.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Medical Only Temporary Total Permanent Partial Fatal & Permanent Total Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 86

87 Alaska Indemnity Loss Distribution by Injury Type 36% 47% 11% 6% 26% 60% 4% 10% 33% 57% 4% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 87

88 Alaska Medical Loss Distribution by Injury Type 33% 43% 16% 8% 0% 28% 48% 6% 17% 1% 30% 47% 9% 13% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Temporary Total Permanent Partial Permanent Total Medical Only Fatal Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 88

89 Glossary

90 Glossary Assigned Risk Adjustment Program (ARAP) An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification. Calendar Year (CY) Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents. Calendar-Accident Year (AY) The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience. Claim Frequency The number of claims per unit of exposure; for example, the number of claims per million dollars of premium or per 100 workers. 90

91 Glossary Claim Severity The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims. Combined Ratio The sum of the (1) loss ratio, (2) expense ratio, and (3) dividend ratio for a given time period. Detailed Claim Information (DCI) An NCCI Call that collects detailed information on an individual workers compensation losttime claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim s report to the carrier, etc. Direct Written Premium (DWP) The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums. 91

92 Glossary Indemnity Benefits Payments by an insurance company to cover an injured worker s time lost from work. These benefits are also referred to as wage replacement benefits. Loss Ratio The ratio of losses to premium for a given time period. Lost-Time (LT) Claims Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work. Medical-Only Claims Claims resulting in only medical benefits being paid on behalf of an injured worker. Net Written Premium (NWP) The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded. 92

93 Glossary Permanent Partial (PP) A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction. Policy Year (PY) The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period. Schedule Rating A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk. Take-Out Credit Program An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace. Temporary Total (TT) A disability that totally disables a worker for a temporary period of time. 93

94 Appendix

95 NCCI s Workers Compensation Resources Financial Aggregate Calls Used for aggregate ratemaking Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Used for class ratemaking Detailed Claim Information In-depth sample of lost-time claims Policy Data Policy declaration page information 95

96 Financial Aggregate Calls Collected Annually Policy and calendar-accident year basis Statewide and assigned risk data Premiums, Losses, and Claim Counts Evaluated as of December 31 Purpose Basis for overall aggregate rate indication Research 96

97 Policy Year Financial Aggregate Data Policy Expiration Date Policy Year 2012 Policy Year 2013 Policy Year /1/2012 1/1/ /31/2013 1/1/ /31/2016 Policy Effective Date 97

98 Calendar-Accident Year Financial Aggregate Data Policy Expiration Date Calendar- Accident Year 2013 Calendar- Accident Year 2014 Calendar- Accident Year /1/2013 1/1/ /31/2014 1/1/ /31/2017 Policy Effective Date 98

99 Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Data Experience by Policy Detail Exposure, premium, and experience rating modifications Individual claims by injury type Purposes Classification relativities Experience Rating Plan Research 99

100 Valuation of Statistical Plan Data 1st Report Valuation 2nd Report Valuation 3rd Report Valuation 4th Report Valuation 5th Report Valuation Policy Effective 18 Months 42 Months 66 Months 30 Months 54 Months 100